Construction Delays Slow Multifamily Peak
The latest residential construction data suggests a housing market on the upswing, but a full recovery is still hobbled by challenges facing the construction industry, including the low availability of labor, rising construction costs, and lending restraints. As a result, the current real estate cycle’s peak levels of new supply (at the national and metro levels) are projected to occur later in 2017 than initially thought.
For starters, more construction jobs are available than at any point since late 2007. There were 221,000 construction job openings in September, up from 192,000 in August and 104,000 in September 2015.
Zooming in on one specific construction employment category, general contractors, we can see just how the woes of the construction industry differ for single-family compared to multifamily construction.
Single-family contractor employment is well below its long-term average, while multifamily contractor employment has exceeded its long-term average since mid-2014. This aligns with what we know about the levels of development activity in the single-family and multifamily space: Apartment construction is booming, while single-family construction continues to lag behind (albeit with some steady improvement).
Not only is it more difficult to find construction workers, the cost of construction itself has been on the rise, further contributing to delays. The Producer Price Index of three key construction commodities -- ready-mix concrete, gypsum and softwood lumber -- illustrate the dramatic increase in construction materials over the last several years.
Since 2010, the price of concrete has increased by 18%, gypsum by 49% and lumber by 33%. Over the past year, those prices have increased by 3%, 1% and 8%, respectively. However, the prices of all three commodities have decreased slightly in the past month, with the price of lumber falling the farthest. Whether these downward trends continue remains to be seen.
Finally, construction delays can also be attributed to tightening lending standards, which have been particularly significant for multifamily loans.
Some 42% of senior loan officers at domestic and foreign banks with U.S. branches reported tightening loan standards on multifamily projects in the fourth quarter, according to Federal Reserve Bank survey data. This is down slightly from the 44.3% who reported tightening in the third quarter, but way up from the 7.4% reporting tightening a year ago. In fact, the start of the tightening standards only began between the third and fourth quarters of 2015. In other words, over the course of just one year, multifamily loan standards tightened dramatically.
To some observers of the industry, the tightening lending standards for multifamily are indicative of an actual construction recession in the near-term, particularly when viewed alongside construction spending in the aggregate, although Axiometrics does not subscribe to this theory.
Residential construction spending grew by only 0.6% in September 2016 compared to the year prior, down from 1.8% in August and 4.2% in July. On the non-residential side, construction 
spending actually fell on an annual basis, the first negative growth rate since summer 2013.
Because the multifamily lending environment tends to be a leading indicator for later construction spending, the sharp increase in the share of loan officers reporting tighter lending standards indicates that the slowdown in construction spending is just the beginning, and further declines are to be expected.
Taken altogether, the low availability of construction labor, rising construction costs and tightening lending standards contribute to construction delays at the national and metro levels, with each metropolitan area impacted differently.
One year ago, we forecasted that the peak in national supply would arrive in the first quarter of 2017; now, we project peak supply to occur one quarter later, in the middle of 2017. The metro areas with the longest construction delays (measured as the difference between peak supply projections one year ago with peak supply projections today) are listed in the table at above right.
were up 2.2% from last year.
